It’s an interesting week so far. Stocks dropped about as far as they could to keep bounce patterns alive (some indexes/ETFs tested their lows) and the precious metals broke down and bounced. Let’s take a snapshot of where things stand using SPX, ACWX, EEM, Gold, Silver and GDX.
I have been nursing the would-be bounce in SPX by holding and adding SPY. As mentioned in the in-day notes this drop to fill the lower gap has bent the pattern out of symmetry and considering that the SMA 50 is turned down and the SMA 200 is starting to turn down I think it is best to view a measured move (which would be our old target of 3000) as a lower probability for now.
SPX has the SMA 200 and especially the SMA 50 as notable resistance. The latter is key because it has lateral resistance in the form of the pattern’s highs (Oct. & Nov. highs) and the SMA 50 declining to meet it. This morning, the market is pulling back much of yesterday’s gain and the bigger picture view remains to the bearish side. If SPX takes out yesterday’s low things could get pretty bearish sooner rather than later.
As for this morning’s pullback, the media are headlining Nvidia and Bitcoin as Semi and Tech lead the pullback. Humorously, here is a headline from MarketWatch: The chip slowdown is real, but how bad will it be? Well, we have only been on this theme for a year and with the media now on board we can be sure that the Semi bear theme is fully permeating every corner of conventional market analysis.
The World (ex-US) ETF got a lot of volume conviction over the last few days as it tries to make a right side shoulder to a bounce pattern of its own. Its trends are down but this morning’s stock market weakness aside, it could have more bounce left in it. That will likely be up to the USD to decide.
Speaking of USD sensitive markets, the EMs, which have also gotten some positive volume conviction, appear to be at a point where a USD bull and/or EM bear would short. It has bounced back to the firmly down trending SMA 50. Now, if we get a weak USD event, EM can burst all the way up to the down turned SMA 200 and still be bearish.
Gold broke down from lateral support (and the SMA 50) and has bounced back to it. It has halted at the short-term EMAs 10 & 20. In making a higher low to September gold has the potential to have begun an uptrend but that is far from confirmed because it would need to clear the October high to establish an intermediate trend. And even then, the down-sloped SMA 200 awaits.
Silver has bounced back to very clear resistance. If it makes it through here there is still the down sloping SMA 50 to deal with. We have noted that a breakdown here could target the 2015 low of 13.62. That’s just a couple dimes and some pennies below this week’s low. Alternatively, a recovery from this breakdown would be very notable for the precious metal that usually leads the sector’s bull phases. So let’s keep a close eye on silver for both a climactic washout and the opposite.
The Silver/Gold ratio is by the way, still in lockdown.
Finally, the gold miners ETF GDX has risen to a very key resistance area. Yesterday it crept above the SMA 50 but I continued to hold it short (against fairly light sector long positioning). If I am a gold stock bear I start to get a little hot under the collar if GDX breaks through the red X and holds it.
Bottom Line
We can continue to view the US stock market as at significant risk on the big picture, but its bounce potential is still intact despite this morning’s red pre-market. The bulls would have preferred immediate follow-through, however.
Global stocks are similar, but are more inversely tied to the US dollar’s situation, which is bullish. EEM looks like it is at a point for dollar bulls/EM bears to short, but that positive volume conviction could be a concern for the bears.
The precious metals broke down and are bouncing. Generally, the gold sector is ‘anti’ the cyclical risk ‘on’ trades and while it is a process, we watch for risk ‘on’ to top out and the gold sector to make its real bottom in the coming weeks/months. Thus far the bounce has not yet negated the recent breakdowns. Side note: HUI has a somewhat more bullish setup than GDX, and GDXJ has a slightly more bearish one.
